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FedEx: Founder Gambled His Last $5,000 at a Blackjack Table to Stave Off Bankruptcy


See the hidden arrow in the FedEx logo?

Fred Smith, then an undergraduate at Yale University, wrote a paper for
an economics class that proposed overnight delivery service in which one
carrier is responsible for a piece of cargo from pick-up through delivery.
To accomplish that, the carrier needs to fly all of its own airplanes,
operate its own depots, posting stations, as well as delivery vans.

At the time, cargo shipment was handled by a chain of companies – the
journey of a box would include being picked up by a local agent, flown
by an airline’s cargo department, then handed over to a local van company
for delivery, so Smith’s idea was unorthodox, and he got a grade of "C"
for that paper. The professor wrote: "The concept is interesting
and well-formed, but in order to earn better than a ‘C’, the idea must
be feasible."

Despite
his professor’s lack of encouragement, Smith held on to the idea and founded
Federal Express in the early 1970s. In 1973, the company carried its first
load of 186 packages … and immediately ran into financial troubles.
Beset by rapidly inflating fuel prices and other costs, FedEx was bleeding
money.


Federal Express’ first plane: Dassault Falcon 20, now at the Smithsonian
Naitonal Air and Space Museum. Photo: RadioFan/Wikipedia

FedEx had only $5,000 in its checking account, and faced a $24,000 jet
fuel bill. After he was turned down for a loan by General Dynamics, Smith
took his last $5,000, flew to Las Vegas and playedbBlackjack. He won $27,000
– enough to pay the fuel bill and operate for another week. Smith’s partner
Roger Frock recounted the experience:

I said, "You mean you took our last $5,000– how could you do
that?" He shrugged his shoulders and said, "What difference
does it make? Without the funds for the fuel companies, we couldn’t
have flown anyway." Fred’s luck held again. It was not much, but
it came at a critical time and kept us in business for another week."

Shortly afterwards, Smith was able to secure more loans and FedEx rode
out its bumpy early days. Today, FedEx carries up to 17 million packages
on its busiest day and is worth about $28 billion. Fred Smith himself
is worth about $2 billion.

Post Metadata

Date
October 10th, 2012

Author
Stranger to the World

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